Look carefully at your paycheck stub. If you noticed then you should ask what is OASDI tax. This term is the reason for reducing the amount of money you get. This common term is still confusing for many people who have a contribution to the OASDI tax.
The government collects taxes in many ways. This is one of these parts. But the good news is, the amount can secure our future when we need financial aid from the government. To cover the amount of tax, the government makes the criteria for who will pay this tax and who’s not.
Even it is deducted from the people who earn their first dollar from the job. See, you need to know more about it. Here are more details you’ll find below.
Brief History of OASDI Tax:
Thanks to former President Franklin D. Roosevelt. He is the man who issued OASDI taxation in 1935. When the US economy was in a very low state, the Government of the US came forward to give support to its people in many ways and they introduced the OASDI tax.
This tax is for social security and Medicare. Not only that, OASDI stands for Old Ages, Survivors, and Disability insurance. From the name, you can understand what the actual purpose of the OASDI tax is. This term will work as a helping hand when you get retired.
Yes, it’ll replace your income as a monthly benefit. After a certain age, you can collect your benefits. Almost 222000 people already benefited from this taxation system.
What The OASDI Tax Covers?
To enrich your general knowledge about OASDI tax, you should know the criteria. It covers few options and these are:
Support In old Age
One day, you need to go for retirement. When you are at your retirement age, the government will declare you as a qualified person for the benefit. By that time, a portion of your income will be replaced through this benefit.
Benefits for Survivors
Getting a survivor’s benefit amount is a bit more complex than the benefit you get after retirement. This benefit depends on your deceased relative and their earnings.
The government will calculate how much your deceased relative paid for social security. After the calculation, you’ll get the benefit. The more your relative paid, the higher the benefit would be.
Lump-sum Death Payment
OASDI tax is also related to death payments. If the spouse or child is alive, then they’ll receive a lump-sum amount on behalf of the dead person. The amount is almost $225. But this amount is to fulfill specific requirements.
Benefits for Disabled Person
This is one of the best benefits given by the government through the OASDI tax. There is SSDI (Social Security Disability Insurance) for people who are disabled. This insurance program aims to give benefits to a person or family member.
Not only that, for their children and adults, there is also a Supplemental Security Income (SSI) program available to provide more benefits.
Is OASDI Tax Mandatory or Not?
I know you are looking for the answer to this question. It’s federally mandatory. That means all of the workers must contribute a portion of their income. The good news is, there are some exceptions too.
Based on the rules of the OASDI tax, some religious groups are free from paying Social Security tax. But they have to ensure their present state in order to become exempt.
Who Is Exempt From OASDI Tax?
The US government is very much flexible to their people and we saw this impact on OASDI. It’s true, OASDI is almost mandatory for the people of the US but not every working person contributes. Yes, you heard right. Some people are legally exempt and they include:
- People (families and domestic workers) who are not US citizens but working in this country for a long time.
- Those who are related to the educational profession.
- Foreign students.
- Part-time workers, especially students who are enrolled in the same institution where they work.
- Officials of foreign governments.
- People from certain recognized religious groups and communities.
How Much Is The OASDI Tax?
Government imposes OASDI tax on the people at different rates. Based on the occupation, the rate varies. They have different rules for employers and self-employed individuals.
For the employees, the tax rate is 6.2%. But employers need to play an important role in it. They had to cut it from the employees. After the deduction, employers need to send it to the government fund. But there is a condition for that. Employers must match the rate with their funds.
The bad news is, the OASDI tax rate is high for a self-employed individual. There is a reason for that. A self-employed individual works as an employee and employer. So they need to pay both portions for the OASDI tax.
What Is The Maximum Amount of OASDI Tax?
OASDI tax only applies based on wages and salaries. The amount should be certain. But year to year, the amount is changing. For example, in 2020, the amount was $137000. Now you can calculate the figure that you need to pay as OASDI tax.
Let me help you. The amount of OASDI tax is $8537.40. This amount will be twice if you’re self-employed. One more thing, what will happen in an overpaid situation for the OASDI tax?
Don’t worry, you can easily use the excess amount in your income tax return. It’s one kind of refund of the overpaid amount.
In the final segment, we come to a conclusion about the OASDI tax. This type of tax comes as a blessing for the people of the US. Additionally, it’s a way to secure your future.
When you need the financial support most, OASDI tax will help you to get such an amount. I hope now you know what is OASDI tax and why it’s important to secure your future. During your old age, this one would be the only reliable income.
Even if you encounter eventualities that lead to disability, the OASDI tax is here to benefit you. So, you should always contribute to the OASDI tax. Remember, as much as you pay, the higher your benefit will be.